Value Chain Analysis

Value Chain Analysis explains the activities taking place in a business organization and relates them to an analysis of the competitive strength of the business.

Michael Porter suggested that the activities of a business could be grouped under two headings:

• Primary Activities:  Which are directly concerned with creating and delivering a product (e.g. component assembly); and
• Support Activities: Those that are not directly connected with production, but may increase effectiveness and efficiency (e.g. human resources management).  It is rare for a business to undertake all primary and support activities.

Linking Value Chain Analysis to Competitive Advantage:  The activities a company goes through are directly linked to achieving competitive advantage.  For example, a company wishing to out perform its competitors, must differentiate itself through higher quality performance through its value chain activities compared to the competitors.  In contrast, a strategy for cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.

Primary Value Chain Activities:

In-bond Logistics: Activities related to receipt and storing of outsourced materials.

Operations: Manufacture of products/services (how inputs – raw materials – are converted into outputs – products .

Out-bound Logistics: Activities that involve getting the finished goods to buyers.

Marketing & Sales:  Information activity – creating an awareness of products/services to buyers.

Service: Activities related to products/services performance after it is sold.

Support Activities: Three sequential steps of value chain.

Break down of market/organization according to key activities under each major headings in the model.

To add value through cost advantage or differentiation or to identify current activities where a business appears to be at a competitive disadvantage and to asses their potential.

To sustain competitive advantage through strategies built around focusing on activities.

Questions:

• What are primary and support activities?
• Describe primary value chain activities.